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Tax Resolution & Representation
Let YOUR Voice Be Heard! ®
Tax Crisis Center®, LLC
don't take care of our clients,
Voice Be Heard! ®
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IRC §6672 states the following:
(a) General rule.
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 or part II of subchapter A of chapter 68 for any offense to which this section is applicable.
Now we enter the case of William R. Shore v. U.S. A district court has denied a refund of a responsible person penalty that had been paid by the owner of a company who had delegated duties to a manager who ended up embezzling funds from the company. While the court sympathized with the owner, it found him liable for the penalty because he was a responsible person and he paid unsecured creditors after learning of the manager’s failure to pay IRS.
In determining whether an individual is a responsible person, courts consider factors including such as whether the taxpayer served as an officer of the corporation or a member of its board of directors, owned a substantial amount of stock in the company, participated in day-to-day management of the company, determined which creditors to pay and when to pay them, had the ability to hire and fire employees, or possessed check writing authority. Not every factor must be present, instead, a court must consider the totality of the circumstances to determine whether the individual in question had the effective power to pay the taxes owed.
William Shore (Shore) owned real property (the property) that he leased to Countryside Repair & Equipment (Countryside), a farm equipment seller, until late 2004 when Countryside closed. At the time Countryside ended its lease with Shore, a representative for McCormick Tractors, a line of tractors sold by Countryside, proposed that Shore start his own business on the property and become a McCormick dealer. Shore was initially uninterested because he was retired and lived far away. The McCormick dealer then suggested the manager of Countryside, Tom Lewis (Lewis), had 25 years of experience buying and selling tractors and could run the business for Shore.
Shore met with Lewis and ultimately decided to form Bear River Equipment, Inc. (BRE). Shore and Lewis verbally agreed that Lewis would run the business and have the option to purchase it at any time by repaying Shore’s initial $150,000 investment in the company with interest. Both parties believed that Lewis would eventually purchase BRE.
Pursuant to their verbal agreement, Shore hired Lewis to manage every aspect of the business, including day-to-day operations, financial management, purchasing of product lines, paying all of BRE’s bills, and other duties required to run an equipment sales business. Lewis was responsible for supervising, hiring and firing employees, as well as for submitting all tax forms for BRE and paying its payroll taxes. Shore viewed his role in BRE as an investor, and essentially treated the company as if it belonged to Lewis. Lewis and his wife also treated BRE as their own company and held themselves out to others, such as an accountant they hired to work for BRE, as the owners of the company. However, Lewis never exercised the option to purchase BRE.
Shore played a very limited role in the operation of BRE. But he signed the Articles of Incorporation as President of BRE, owned all of its shares, signed various contracts on its behalf as its president, and personally guaranteed an operating line of credit eventually obtained by BRE from a bank. Shore spoke by phone with Lewis once or twice a month to discuss operations and made quarterly visits to BRE to check inventory and generally assess the business. Shore also reviewed balance sheets and annual statements Lewis sent him for BRE.
Shore eventually noticed unpaid payroll obligations from 2005 and directed Lewis to pay them. Shore ensured Lewis paid the payroll obligations from 2005 by the January 2006 deadline. Shore had authority to sign checks on the bank account, though he did not write any checks on the account, and was listed on the check signature card as owner of BRE.
In August 2007, Shore received notice from IRS that there were serious issues with BRE’s employment taxes for 2006 and 2007. This was the first time Shore became aware that BRE’s 2006 and 2007 payroll taxes had not been paid. Shore subsequently learned that Lewis had been embezzling from BRE, failing to pay creditors or pay BRE’s taxes, and stealing BRE’s assets. Upon discovering Lewis’ fraud, Shore fired him and took over management of BRE. Shore ultimately decided to close BRE because he believed he could not pay all of the liabilities and contribute sufficient working capital to keep the company going. Before doing so, however, he allowed more than $120,000 from BRE’s checking accounts to be paid to unsecured creditors other than the U.S. Although Shore believed he should not be held liable for BRE’s unpaid payroll taxes because he was not a responsible party and did not willfully ignore tax obligations, he paid $101,583 in trust fund recovery penalties to the U.S. and later filed the instant suit to obtain a refund.
Here is the law, if you have a business and you have control of that business as an officer, shareholder, or make day to day decisions for a business, and you don’t pay payroll taxes, the IRS can access a Trust Fund Penalty against you personally. Not paying your payroll taxes, is in fact embezzling money from the United States Treasury Department. Because a corporation can go out of business, and wipe its debts clean, the IRS will issue a Trust Fund Penalty to protect the government’s interest and make sure that the amount will be paid back to the government.
The mistake that Shore made was that when he learned of the embezzlement of funds and the nonpayment of the payroll taxes, he paid unsecured creditors instead of paying the IRS. The court concluded that the undisputed evidence established that Shore was a responsible person under Code Sec. 6672 . First, he was BRE’s president and signed contracts on its behalf as its president, including inventory agreements BRE needed in order to obtain the farm equipment it sold, and Shore also personally guaranteed such contracts. Shore also signed on BRE’s behalf and as its president when BRE opened a line of credit, which Shore personally guaranteed. Further, Shore was BRE’s sole shareholder. He thus had the effective power to change the company’s employees and thereby direct the business of the corporation. Shore also possessed, but did not utilize, check writing authority on BRE’s account with Ireland Bank.
Shore didn’t manage the day-to-day operations of the company or, at least while Lewis served as manager of BRE, determine which creditors to pay and when to pay them. However, Shore had monthly telephone calls with Lewis to discuss the business, made unannounced visits to BRE to assess inventory, and reviewed BRE’s financial statements.
When he learned that Lewis had not satisfied payroll liabilities in 2005, Shore called Lewis and ensured such liabilities were paid. Shore thus had the authority to order the payment of delinquent taxes. Thus, despite delegating his authority to Lewis and permitting him to run BRE’s daily affairs, Shore remained a responsible person because he had effective control of the corporation and the effective power to direct the corporation’s business choices, including the withholding and payment of trust fund taxes.
Shore was also ultimately responsible for hiring and firing Lewis.
The undisputed facts conclusively established that Shore possessed the status, duty, and authority necessary to be a responsible person under Code Sec. 6672 , as evidenced by his title, stock ownership, check writing authority, his ability to ensure that the 2005 payroll taxes were paid upon learning they had not been remitted, his authority to force the Lewis’s out of the business, and, perhaps most importantly, the fact that Shore ultimately took complete control over BRE once he learned of the tax liability. Therefore, the court found Shore was a responsible person as a matter of law. Even if you have directed an employee to make the payments to the IRS and they fail to do so, you could be held liable like Mr. Shore.
The question would arise: why doesn’t the IRS go after Lewis for his failure to pay the payroll taxes? Very simply, they determined that they could get the money out of Shore and not Lewis. Does Lewis have some responsibility? Yes he does. If this had happened where Shore never had any idea of what was going on, and the IRS came in to assess the Trust Fund Penalty, they would have probably assessed the penalty against Lewis as Shore had no idea that the taxes had not been paid.
When dealing with payroll taxes, the IRS doesn’t play around. Be very careful. If you find yourself in a similar situation, give us a call at 1-855-IRS-2-911.
In 1998, Congress held hearings in regards to the collections practices of the Internal Revenue Service. The agency was under heavy scrutiny because they were using questionable collections tactics, which were, as some Congresspersons said, worse than the Mafia. These practices included wrongfully seizing assets, wrongfully levying accounts, and horrendous harassment. Out of these hearings came the Taxpayer Bill of Rights, and an independent agency called the Taxpayer Advocate. The Taxpayer Advocate (TPA) is basically the police of the IRS. When the IRS oversteps their boundaries or does not follow protocol, us practitioners go to the TPA. I have a true story to tell you about a case I just has resolved.
A client of mine was a victim of identity theft. It is rampant with the IRS right now, and is a major hot button issue. My client filed his 2010 tax return in 2011. In 2012, he went to file his 2011 tax return and learned that his return had already been filed by someone that stole my client’s identity. My client had never filed his 2011 return so he called the IRS, and sure enough his tax return had been filed. His official address with the IRS had been changed to an address in New York City. He worked for a year to get this cleared up with the IRS.
In the meantime, my client’s tax return from 2010 was selected for audit. It was a correspondence audit (meaning the audit happens where a tax examiner asks for information to be mailed in). Because of the ID Theft, and the client’s address officially being changed to New York, my client never got the audit notice. The IRS never received any documentation, and closed the case disallowing all of the deductions that they had questioned. By the time the IRS assessed the tax, my client finally has his address changed back to his home in Florida, and he gets a letter stating that he owes $8,000 in additional tax from 2010. Very confused, my client calls the IRS and finds out that he was audited, and the bill was the result of the audit.
Here is where I get got hired. When a taxpayer is audited, he has a right to produce evidence to defend the claims that they made on their tax return. The examiner can either accept these or not except these. The examiner will send the taxpayer a formal notice of the changes that are being made to the tax return, and why they are being made. A right of the taxpayer, is to appeal the decision of the examiner by asking for a formal appeal based on the Internal Revenue Code, or other reasons. The taxpayer does not sign the change form, and has 30 days to ask for the case to go to appeals. The Appeals Division of the IRS is a separate independent division. When a case goes before them they weigh something called the “Hazards of Litigation.” What that means is that they weigh the cost of the IRS fighting their position in Tax Court versus the amount of tax that is owed, and they either side with the taxpayer or the IRS. If they side with the IRS, then they issue a 90 day letter, stating that the taxpayer has 90 days to petition the United States Tax Court. Since my client missed all these notices, because they were going to the address in New York, he lost all of his basic rights. Tax Crisis Center®, LLC’s trademarked slogan is Let YOUR Voice Be Heard®. I am very big on client rights. I am hired to preserve these rights. The only available right that my client had at the time that I was hired was to appeal the collection of tax. I appealed the collection of the tax, and my case was sent to an appeals officer, and all collections actions stopped.
At the appeal hearing I explained the entire story and I asked for the case to be sent back into audit so my client could get all of his rights back. The Appeals Officer explained to me that I could ask for an Audit Reconsideration, and that if we didn’t like the outcome, we could appeal it, but we didn’t have Tax Court Rights. I knew that already, but my thoughts were, that it wasn’t my client’s fault that the IRS was sending notices to the wrong address, so they deserved ALL of their rights back. The Appeals Officer took all of my evidence and stated that she would make a decision in the next couple of weeks. Three weeks later, I got a letter from Appeals stating that my client WAS NOT a victim of ID Theft, and they were disallowing my request.
I immediately filed Form 911 with the TPA Office. A week later, I spoke with the TPA, and explained the situation. They got the clients file from the IRS and the advocate and I worked on the case. I am happy to say that not only did my client’s case get put back into audit, where they have ALL of their rights restored, the TPA, also fixed the ID Theft issue that was still unresolved.
When hiring a tax professional to handle an IRS issue, make sure that they know what they are doing, and will fight for you no matter how long the case goes on. Too often in the Tax Resolution Business, these companies will take your hard earned money and do the bare minimum to resolve the case. Be careful who you hire.
Let YOUR Voice Be Heard®
Once upon a time, the IRS accepted something called Offers in Compromise less than 1% of the time that they were filed. You had better odds going to Las Vegas and playing blackjack to get the tax money that you owed than to ask for an offer. The IRS just released statistics about three weeks ago on their Offer in Compromise Program and in 2011 the Service accepted 18%, in 2012 the Service accepted 19%, and in 2013 the IRS accepted 20% of these offers. Let’s discuss what an Offer in Compromise is, and how they work.
An Offer in Compromise is just what the name says. You offer the IRS an amount that is less than your tax debt, and they compromise the debt. An Offer in Compromise is nothing new. They have been around for many years. They have become more popular as Tax Resolution Companies have sprouted up across the country. In fact under the CWSEAPA® brand we own Tax Crisis Center®, LLC, based in Nevada. Tax Crisis Center®, works with clients that owe the IRS money, are being audited, are appealing an audit or collections decision, or are filing a United States Tax Court Petition. We file a number of offers every year.
Let’s talk briefly about how an offer works. Let’s say that you are 45 years old. You are unemployed, and you owe the IRS $75,000. Your assets are your home that you are upside down in, $1,500 in the bank, a car that is worth $3,000, and a 401(k) that has $10,000 in it. You could ask for an offer based on something called “Doubt as to Collectability.” What you are saying is that the IRS probably will not collect the amount of taxes due in your lifetime, so it would be better to get something out of you rather than nothing.
Another offer you can file is something called “Doubt as to Liability.” These offers are usually filed when you don’t believe that you owe the amount that the Service says you owe. There are many reasons to file an offer this way, the main reason is to get the IRS to audit the return again.
I want to caution you on something, do not just file an offer because a lot are accepted. Typically offers are filed as a measure before the IRS puts a lien on you, or when a lien has been placed on you and you are trying to get the IRS to stop their collections actions. In filing an offer, you have to give up a lot of personal information like bank account numbers, vehicle identification numbers, etc. If the offer is rejected you have just told the most notorious collection agency in the world where they can get their hands on your assets. Most Tax Resolution Companies will just file these offers and collect a fee. At Tax Crisis Center®, we will only file one if we believe that they have over a 70% chance of being accepted.
The Offer in Compromise program can save you a lot of money, but choose a company that won’t just file one to collect a large fee.